Post # 1
Member
146 posts
Blushing bee
Hello Bees! I am trying to figure out an emergency fund amount that would give us a cushion but wouldn’t be excessive since we are trying to aggressively pay down debt. We keep a “life happens” savings account with around $1000-$1500 for minor unexpected expenses such as car issues and if we know we have a large expense coming up like a vacation or house expense we save up and pay cash for it. Because of this our emergency fund is a true emergency fund for job loss/illness/death/severe house issue. We pay our credit cards off every month so we don’t have any debt there, most of our debt is student debt and mortgage.
We both make similiar incomes and put an extra $1500-$2000 a month towards the high interest student loans. We currently can not afford to live on one income but if one of us lost our jobs we could live on one income plus a server/batender wage (we both have experience) until a new professional job is found. We are in our mid twenties and healthy so the chances of severe illness are slim but we both have short term and long term disability. We both have are enough life insurance that if one of us happens to die, we could pay off the student loans and afford our current standard of living on the survivor’s income without having to sell the house.
Currently we have $10,000 is the emergency fund. If we are close to paying off a student loan (we have several small loans) we will let it dip down to $8,000 so we can pay off the student loan and avoid a few extra months of interest. We are looking at having all the student loans gone in the next five years then we could easily live on one income. Is $10k enough? I’ve heard 3-6 months of expenses but that seems high given that we are low risk for death/illness, have very stable jobs, and don’t have dependents. I don’t want to have too much excess sitting in the bank if it could be used to wipe out student loans.
Post # 2
Member
15287 posts
Honey Beekeeper
If it’s a high interest loan, I’d try to knock that out as quickly as possible sooner than later. If you wait until the end when there’s just say 2 or 3k left, then you’ve already paid up most the damage in interest by then (assuming it’s a “normal” loan where it’s very interest heavy in the beginning and mostly princple at the end) and there’d be no point in using the savings at that point to pay it off to save the interest. At that point you might as well continue to make the regular payments. It would make more sense to do that as early as possible to reduce the amount of principle you’re paying intrest on. ‘
If you could survive on one income plus a side job that you could easily get, then I personally wouldn’t really worry about keeping too much in the emergecy fund. 5-10k sounds reasonable to me. To lock up anymore rather than paying debt seems unnecessary imo.
Post # 3
Member
564 posts
Busy bee
We always have 6 months of expenses for an emergency, plus more savings outside of the emergency fund. No matter how healthy it’s good to be prepared, unexpected accidents would cause just as much of an issue and are not related to health (ie car accident)
Post # 4
Member
4239 posts
Honey bee
I get you wanting to keep it in savings, but if you have it, I’d say pay off the loans. That will free up a lot more income that can go back to your savings account.
It sounds like you have your life on track financially which is really great, especially in your mid-20’s! You don’t mention this in your post but be sure you are also fully funding a retirement account!
Post # 5
Member
1582 posts
Bumble bee
At least 6 months of expenses, but is 27000 for that figure based on bare minimum? I’ve calculated our expenses based on current spend and what we do to mitigate spend in an emergency situation; i.e., dropping cable, reducing cell plans, skipping the gym, etc. Because remember if you are in a job loss situation it isn’t just about how much you’ve saved but how you can cut expenses till you’re back on your feet, too. So that could help too! I think you can afford to drop to 8K from 10K to knock the loan out faster. You could always put the money you would have paid on that loan for the next few months back into savings till you recoup there and then switch over to hitting the rest of the loans harder. And you didn’t mention it since it’s probably just not relevant right now, but I hope that you have retirement savings in the mix too!
But just wanted to add that you both sound very financially responsible already and way ahead of a lot of people. Keep at it! 🙂
Post # 6
Member
1943 posts
Buzzing bee
I always do 3 months because you never know what could happen. My sister had a stroke at 26. Who could have predicted that? My friend just died at 32. His wife is pregnant.
If you have 3 months, then pay off the student loans because it’s not bad debt. But I know not wanting to have any debt.
You guys are doing an amazing job though so that’s excellent!
Post # 7
Member
13951 posts
Honey Beekeeper
We try to keep 3-6 months in an emergency fund and work off paying off my student loans as fast as possible.
I think definitely at least 3 months is necessary. If your jobs are as stable as they can be, in a good, stable industry, 3 months is sufficient until you’ve paid off your loans. Then I’d suggest building it up to a minimum of 6 months.
Post # 8
Member
1105 posts
Bumble bee
I think 3mo in your situation is fine, it will give you time to find a new job or recover from non life threatening illness. After your loans are paid off, definitely get to 6mo.
Im in the same boat as you, DH had 120k in SL debt when I met him, we are down to 30k and just the lowish interest ones (only two left woot woot). I think its fantastic youre tackling this now, good luck!
Post # 9
Member
422 posts
Helper bee
I think you’re good where you are at. At a certain point it makes more sense to pay off the debt faster so you don’t have as many financial obligations in the event that there *is* an emergency. We’ve tended to keep an emergency fund of $5000 as we pay down student debt and our car note.
Post # 10
Member
217 posts
Helper bee
Pay off your loans. Why pay five years of interest of you don’t need to?
Post # 11
Member
9144 posts
Buzzing Beekeeper
MissBridge : Do you mind sharing the interest rate on the student loans and about how much that interest is currently costing per month? That would factor highly into my decision if I were you. If it really is high, I’d focus on knocking that out quickly before padding the emergency savings. If it’s not really that high, then it might be worthwhile to build up the savings. Student loans and mortgages are “good” debt — relatively of course. As long as you’re paying as agreed, they don’t look bad to anyone who’s reviewing your credit report.
Post # 12
Member
146 posts
Blushing bee
Just to clarify, we have knocked out a few loans already. I was talking about that when I said we let our emergency fund drop to $8k to finish paying off a loan. Our loan balance is way more than our emergency fund so I am asking about a good amount to keep in the emergency fund while paying off student loans for the next five years.
ljm308 : We aren’t fully funding yet. I put 11% into a roth 401k with a 2% company match. He puts 11% into a traditional 401k with a 4% match. We are trying to balance saving for a comfortable retirement and digging ourselves out of debt. I don’t plan to max out the 401k’s till we at least get rid of the loans at 6.1% and 6.8% since I doubt we could make that much after fees in the current stock market.
Daisy_Mae : We have three loans at 6.8% totaling $14,500, one loan at 6.1% for $48,000, and several smaller loans at 3.2% totaling $14,000. That is $364 in interest monthly with a minimum payment of approximately $1000. We try to throw at least another $1500 on top of that a month….It sounds so painful when I write it out.
Post # 13
Member
9144 posts
Buzzing Beekeeper
MissBridge : I know it seems overwhelming, but that’s actually not that bad, especially considering you also have savings AND you’re able to pay a good amount over the minimum. You sound really diligent and disciplined. Are you always thowing the extra towards that 6.8% one? A lot of people are tempted to spread it out, or put it towards the lower balance loans just to get rid of those quicker. That’s a better strategy than just paying minimums, BUT the best strategy, which will help pay the entire balance faster with less interest, is to always put ALL the extra towards the highest interest one. Then if/when that one is gone, you put what you had been paying on that one (so, the payment amt + the extra) towards the next-highest, etc. It does keep those little ones on the books longer, but if your main goal is getting rid of all the loans asap and paying the least amount of interest overall, always throwing extra at the highest rate will do that. I think your savings sounds fine for now, and I would focus on getting rid of the debt. (This is an amateur’s opinion, past performance is no guarantee, blah blah blah)
Post # 14
Member
393 posts
Helper bee
MissBridge : I agree with
Daisy_Mae : that you and your Fiance are diligent and disciplined. I also agree with her strategy of putting more toward the high interest loan. Do either of you have a financial advisor from your job or your financial institution that you can strategize with?
Post # 15
Member
1254 posts
Bumble bee
Pay down the highest interest loan as aggressively as possible. Just make the mandatory payment on the others. I would let your savings dip a little bit if it means getting rid off the 6.8.
you sound very financially astute and responsible!!!